eBusiness Weekly
UK banks are steeling themselves for a windfall tax by stealth as the new chancellor, Jeremy Hunt, tries to plug a £40 billion hole in the public finances.
City lobbyists are concerned that banks will not be compensated for Hunt’s U-turn on corporation tax, which will now mean the levy rises from 19 percent to 25 percent next year.
The former chancellor Rishi Sunak had promised last year to cut a sector-specific tax known as the banking surcharge from 8 percent to 3 percent to make up for the increase. However, Hunt has not made any commitment to do so, despite fears that banks would now have to prepare for a headline tax rate of 33 percent, rather than 28 percent as previously promised.
Smaller lenders including the Co-operative Bank will still benefit from a higher threshold, with the chancellor promising the surcharge will only apply to lenders earning at least £100 million, rather than £25m.
A decision to maintain the surcharge at current levels could help the government raise more cash to plug the hole in public finances.
A Treasury source rejected the suggestion that the move could be seen as a windfall tax by stealth, but said Hunt would confirm his position on the surcharge when he gives his fiscal update on October 31.
The Treasury spokesperson said: “We can’t comment on specific speculation, however the chancellor and prime minister have been clear that difficult decisions will be required to restore economic stability and no options are off the table.”
UK’s tax history
It comes as UK banks prepare to announce potentially bumper third-quarter profits next week, as they reap the benefits of rising interest rates that have increased the cost of borrowing for customers.
Maintaining the surcharge would be seen as a further divergence from the City-friendly agenda of deregulation and tax cuts outlined in Kwasi Kwarteng’s mini-budget last month.
David Postings, the chief executive of UK Finance, the banking lobby group, said the industry already paid a higher overall rate of tax than any other sector, due to the banking surcharge and the smaller 0,1 percent bank levy, which only applies to certain parts of lenders’ UK balance sheets.
After the decision to revert to the original corporation tax hike, “we urge the government to consider the surcharge very carefully and not put at risk the competitiveness of the UK’s banking and finance industry”, Postings said.
However, a senior executive at one high street bank said that while they would prefer the levy to be reduced, maintaining it at current levels was much preferred to tinkering with the interest rate that banks earn from deposits held at the Bank of England. Reports emerged in recent weeks suggesting the Treasury was considering cutting the level that lenders can earn from those reserves. The share price of some major UK banks dipped on Wednesday morning, with Lloyds falling nearly 3,5 percent, Barclays dropping 1,4 percent and NatWest falling 2,2 percent. — theguardian.com
